Electric-utility stocks remain hot, even though many investors find them boring.

The industry is continuing to show great strength, with considerable premiums being paid by acquirers looking to expand their regulated energy-distribution businesses. A large M&A deal announced Monday continues a conversation we’ve been having this year about electric-utility stocks, centering on dividends, takeout targets and even the developing threat from solar-power generation.

There have been 12 electric-utility merger announcements in the U.S. and Canada this year, compared with three at this point in 2013, according to FactSet.

As part of the deal, Integrys will divest Integrys Energy Services, which includes a retail-gas and electric-marketing business, as well as a solar-power-generation business. The surviving company will be called WEC Energy Group, and over 99% of the combined company’s earnings are expected to be derived from regulated operations.

That’s the main factor behind the merger.

After many years of softening wholesale power prices, as U.S. natural gas production rose dramatically, electric-utility companies have come to realize that regulated electric distribution is a far safer business than commodity-driven wholesale distribution and trading. We recently explored this phenomenon in five utility companies that are now takeover targets.

For that first list of potential takeout targets, we focused on the five U.S. electric utilities with the worst five-year stock returns. We limited the list to companies with market values of more than $100 million, average daily trading volume of at least 50,000 shares and positive consensus earnings estimates for 2014 and 2015.

In light of this latest regulated utility deal and the continued strength for the subsector, we’ve put together two more electric-utility stock lists, which have little overlap with the previous one. We’ve used the same criteria listed above to pare the lists, but the newly listed companies are not all acquisition candidates.

Worst stock performers this year

First, here are the five electric utilities with the weakest stock performance this year:

This list is completely different from that of five-year underperformers previously featured. All of these stocks, except one, are up for the year, but all trail the S&P 500 Index. They also lag behind the 137% five-year return for the index, assuming dividends were reinvested.

On a more positive note, these stocks also have attractive dividend yields, which is nothing to sneeze at when interest rates have been so low for so long.

We left two companies off this first list. The first is UNS Energy Corp. of Tucson, Ariz., which in December agreed to be acquired by Fortis Inc. of St. John’s, Newfoundland, for $60.25 a share in cash, or roughly $4.3 billion, which includes the assumption of $1.8 billion in UNS debt. The offer was for a 35% premium over the stock’s closing price on Dec. 11. This deal is expected to be completed by the end of 2014.

Another company was left off this first list because it is on the second list of electric utility stocks trading lowest to forward earnings estimates.

Here’s a quick look at all electric utility laggards:

UIL Holdings

UIL Holdings Corp.UIL, +1.16%
is the only stock listed here to show a negative total return this year. The company is headquartered in New Haven, Conn., and distributes electricity and natural gas to southwestern Connecticut.

UIL reported a 4% increase in first-quarter operating revenue to $571.2 million, and a 7% increase in earnings to $55.5 million. But first-quarter EPS declined to 97 cents a share from $1.01 because of after-tax costs associated with the acquisition of three gas distributors in 2010.

The company pays a quarterly dividend of 43.2 cents a share, for a yield of 4.62%.

Hawaiian Electric Industries

Hawaiian Electric Industries Inc.HE, -0.65%
of Honolulu is next, with a flat year-to-date return this year. The company pays a quarterly dividend of 31 cents, for a yield of 4.86%, second highest among the electric utilities listed here.

According to Barclays credit analyst Y.C. Koh, who downgraded the entire electric utilities sector in May, the cost of solar power generation and storage in homes has become “competitive with the price of utility grid power in Hawaii,” because the state has the highest prices in the U.S.

There’s no near-term threat to utilties from solar competition, and there’s no way of knowing how much of an effect this has had on the stock’s performance this year, but the trend of declining prices for home generation — it is still quite expensive — is something utilities need to factor into their long-term strategies and utility investors need to keep an eye on.

Allete Inc.

Allete Inc.ALE, +0.17%
of Duluth, Minn., distributes electricity and natural gas to retail customers in Minnesota and northwestern Wisconsin, and also has generation, coal mining and real estate investment businesses.

The company reported a 12% increase in first-quarter revenue to $296.5 million, but net income rose only 3% to $33.5 million, as operating expenses rose a bit faster than revenue and interest expenses increased. Earnings per share declined to 80 cents from 83 cents, mainly reflecting a 7% increase in the average share count. CEO Al Hodnik said in the company’s earnings release on May 7 that Allete was “comfortably on track“ to meet its 2014 EPS guidance of $2.75 to $2.95, excluding costs associated with the acquisition of Allete Clean Energy, which lowered first-quarter EPS by 3 cents.

The company earned $2.63 a share last year.

That’s because the company in December agreed to be acquired by Fortis Inc. of St. John’s, Newfoundland, for $60.25 a share in cash, or roughly $4.3 billion, which includes the assumption of $1.8 billion in UNS debt. The offer was for a 35% premium over the stock’s closing price on Dec. 11.

While UNS shareholders, the Federal Energy Regulatory Commission and the U.S. Treasury department have all approved the merger, the companies are still waiting for approval from the Arizona Corporation Commission.

But Fortis soothed state regulators by announcing a settlement on May 16 that includes $30 million in customer credits, “as well as additional capital and enhanced consumer protections,” and limitations on dividends. The Arizona regulators could still reject the deal, although that seems unlikely. UNS expects the merger to be completed before the end of 2014.

Teco Energy

Rounding out our list of underperforming electric-utility stocks is Teco Energy Inc.
TE, -0.61%
of Tampa, Fla., which returned 7% this year through Friday’s close at $7.97. The company pays a quarterly dividend of 22 cents, for a yield of 4.90%, which is the highest among the stocks listed here.

Teco agreed in May of last year to buy New Mexico Gas Co. from Continental Energy Systems LLC for $950 million in stock, in order to grow its regulated customer base by 50%. But the deal hasn’t been completed yet, because the companies are waiting for the approval of the New Mexico Public Regulation Commission.

On May 14, Teco entered into a settlement with New Mexico Industrial Energy Consumers — a group representing commercial customers — and the New Mexico attorney general’s office, agreeing to freeze rates in New Mexico until the end of 2017 and to limit layoffs at New Mexico Gas to 99 positions for three years.

Teco CEO John Ramil said in a press release that the settlement kept the company “on track for the transaction to be accretive a year after closing.”

Teco reported first-quarter earnings from continuing operations of $47 million, or 22 cents a share, increasing from $41.2 million, or 19 cents, a year earlier. Costs associated with the pending acquisition of New Mexico Gas lowered first-quarter earnings by $2.1 million, or a penny a share.

Revenue rose by 3% to $684.1 million.

It appears the delayed approval for the New Mexico Gas acquisition is holding Teco’s shares back, so investors could see a nice market reaction if and when state regulators make a positive decision.

MGE Energy

MGE Energy Inc.MGEE, +0.73%
of Madison, Wis., distributes electricity in Wisconsin and Iowa, and also runs generation and transmission facilities and purchases and distributes natural gas.

For the first quarter, MGE’s operating revenue grew 26% to $210.3 million, while net income was up 23% to $27.7 million and EPS up 23% to 80 cents. Terrible winter weather was a major factor in the improved numbers, as January and February were “two of the coldest months on record in the Madison area,” the company said in its earnings release May 8.

On the next page are the cheapest utility stocks.

Cheapest electric-utility stocks

Here’s another list showing the five electric-utility stocks trading at the lowest forward EPS estimates. The list is limited by the same criteria described above:

To put those forward P/E ratios into perspective, the S&P 500 trades for 14.8 times consensus 2015 earnings estimates, according to FactSet.

A low forward price-to-earnings ratio will certainly not be a heavy factor when an electric utility decides to make an acquisition, but it is a useful figure for investors trying to make comparisons within an industry.

AES Corp.

The cheapest stock listed here is AES Corp. of
AES, +0.86%
of Arlington, Va., which closed at $15.26 Friday and traded for only 10.6 times the consensus 2015 earnings estimate of $1.45 a share, among analysts polled by FactSet.

The stock is up 6% this year, pretty much in line with the broad market. But its dividend yield of 1.31% is, by far, the lowest among the 10 electric utilities listed here.

Regulated energy distribution makes up just over half the company’s revenue, as it also generates and sells power in the wholesale market, with generation operations all over the world.

First-quarter revenue rose 3% to $4.26 billion. But the company reported a first-quarter net loss of $58 million, or 8 cents a share, compared with earnings of $82 million, or 11 cents, a year earlier. One-time items in the first quarter included $134 million from the early repayment of borrowing and a $154 million goodwill impairment charge.

On an adjusted basis, first-quarter operating EPS came in at 24 cents, down from 27 cents a year earlier.

AES has a very complicated set of businesses, with various factors, including currency exchanges, fuel price fluctuations and shortages of fuel for generation plants affecting financial performance. These and other moving parts are detailed on page 3 of the company’s most recent earnings release.

FirstEnergy

FirstEnergy Corp. of
FE, -1.27%
of Akron, Ohio, has had a five-year total return of only 17%, which is the worst among the stocks listed here. The company pays a quarterly dividend of 36 cents a share for a yield of 4.14%. That’s a nice yield, but the dividend was cut in January from 55 cents, when CEO Anthony Alexander said in a press release that the company wanted to use the money “to pursue regulated growth opportunities over the next several years.”

FirstEnergy is the second-largest company by market capitalization listed here, which could preclude a decision to become a seller rather than a buyer. But we have seen some very large M&A deals this year, so it just might be possible.

The company’s numbers show just how important it will be to grow its regulated business, as FirstEnergy’s competitive power-generation business suffered from rising costs. Total first-quarter revenue rose 13% to $4.19 billion, with regulated revenue up 15% to $2.74 billion and unregulated revenue rising 9% to $1.45 billion.

But purchased power expenses jumped 54% to $1.46 billion, with total expenses up 23% to $3.79 billion.

First-quarter net income increased to $208 million, or 49 cents a share, from $196 million, or 47 cents, mainly because the prior period included a $117 million loss from debt redemptions.

Scana Corp.

Shares of Scana Corp.SCG, -0.04%
of Cayce, S.C., are up 15% this year through Friday’s close at $52.69, for the best performance among the 10 utility stocks listed here.

The company generates, transmits and sells electricity to retail and wholesale customers in South Carolina, while also distributing natural gas in North Carolina, South Carolina and Georgia. Scana has a variety of other operations, including energy-related risk-management services, service contracts for appliances and even a fiber-optic telecommunications network and data centers in South Carolina.

First-quarter revenue rose 21% to $1.59 billion, while earnings were up 28% to $193 million and EPS rose 23% to $1.37.

The company generates and distributes power through Arizona Public Service Co.

First-quarter revenue was flat, at $686.3 million, but rising expenses lowered operating income by 14% to $75.2 million. Net income came in at $24.7 million, or 14 cents a share, down from $32.8 million, or 22 cents, a year earlier.

The company blamed poor weather for the weak results and affirmed its guidance for 2014 EPS, ranging from $3.60 to $3.75. EPS in 2013 was $3.66.

Consolidated Edison

ConEd is the highest-yielding stock among the 29 “dividend champs” MarketWatch identified earlier this year. The dividend champs are the 43 stocks among the S&P 1500 that raised regular dividends every year for 29 consecutive years through 2013, according to data provided by FactSet.

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